Public finances on course to meet or beat Hammond's target

UK public finances improved last month and are on track to at least meet the Chancellor's revised targets, although total public borrowing reached its highest level of the year.

Excluding banks, public sector net borrowing was £12.6bn in November, the Office for National Statistics revealed, which was slightly worse than the £12.2bn consensus forecast and up from a revised-higher £4.7bn in October, but down from a £13.2bn a year ago.

Public borrowing excluding banks in the first eight months of the fiscal year of £59.5bn is 11% below that from a year ago.

Central government receipts growth slowed to 3.6% from 8.4% in October, held down by a 1.1% year-on-year dip in income tax receipts.

Economists said the figures would be reassuring for Chancellor Philip Hammond.

Howard Archer at IHS Markit said the modest improvement in public finances kept the government on track to meet – or even slightly undershoot – its upwardly revised target for 2016/17 contained in the Autumn Statement.

Based on the first eight months of the fiscal year, he said PSNB excluding banks is headed for £66.8bn versus the upwardly revised projection of £68.2bn produced by the Office for Budget Responsibility last month and markedly above the original target of £55.5bn for 2016/17 that had been contained in March’s budget.

Scott Bowman at Capital Economics suggested the surge in October due to corporation tax was only temporary, though had been on an upward trend since May.

After the changes made to the dividend tax rate that should result in self-assessment tax receipts being back-loaded this fiscal year, Bowman said he thinks borrowing should come in at around £65bn.

"Looking at the bigger picture, despite the announcement of some extra investment spending in the Autumn Statement, fiscal policy is still set to drag on the economy over the coming years.

"That said, we believe the economy will outperform the OBR’s forecasts which, along with the headroom provided by the Chancellor’s new fiscal rules, could allow for the fiscal squeeze to be eased back further."